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Businesses pay property for a reason. They get fire and police protection. They get roads paved. They get streets plowed. They get to plug into infrastructure. Governments rely on businesses to get revenue. Yet property tax breaks have become ubiquitous and governments are now hurting for revenue.

Three major obstacles can impede the success of property tax incentives as an economic development tool. First, incentives are unlikely to have a significant impact on a firm’s profitability since property taxes are a small part of the total costs for most businesses—averaging much less than 1 percent of total costs for the U.S. manufacturing sector. Second, tax breaks are sometimes given to businesses that would have chosen the same location even without the incentives. When this happens, property tax incentives merely deplete the tax base without promoting economic development. Third, widespread use of incentives within a metropolitan area reduces their effectiveness, because when firms can obtain similar tax breaks in most jurisdictions, incentives are less likely to affect business location decisions.

The authors say states should restrict property tax breaks to distressed geographic areas and certain types of projects. They say governments should actually study if property tax breaks are effective. They also suggest other kinds of government support, such as job training and regulatory relief.

The study found tax breaks for retail and housing developments don’t increase income or employment. But we continue to subsidize projects like College Town and the Greece Ridge Mall.

Links of the Day:

– Riding along with police during the Dave Matthews concert at Darien Lake is a riot.

I am very glad that they have done this study, but really, we have decades worth of evidence undermining the idea that property tax breaks work.
Rachel, I believe you have mentioned before how these businesses fill a niche that would be taken over readily by another business if they left. Never mind the call for tax reform, this is proof we need campaign finance reform, so our elected officials do not feel beholden to the people donating to their campaigns.

Exactly Theodore, Jillians is a great example. My sister worked there, helped them publicize the heck out of the place and then whoosh, gone as soon as they had to pay any taxes.
I sometimes wonder if it is out of sense of entitlement rather than the actual bottom line.

I own a small business and I don’t get any property tax break. It’s discriminatory to give that to some businesses and not others. I don’t mind paying my property tax -as you said, it pays for services that I receive just as well as anyone else in the community. It seems that these breaks tend to go to businesses that could better afford to pay the tax anyway-

One of the biggest abuses of tax breaks was giving Bryant and Stratton in Greece tax breaks to move to a new location. An already successful enterprise (borderline predatory) getting comida help to move a few miles down the road.

Signs in the National Parks say, “please don’t feed the animals.” That’s because if the animals get too comfortable with humans, then they forget how to survive on their own. Businesses are similar. The more corporate welfare they receive, the less likely they are to survive in the true free market. Of course, corporations like the handouts just as much as the wild animals do!

“They say governments should actually study if property tax breaks are effective. They also suggest other kinds of government support, such as job training and regulatory relief.”

I think they’re more concerned with helping their already-wealthy developer friends out than caring about whether tax breaks work or not. Just leave it for the next administration to deal with! They’ve got campaign donors to take care of!

There is a tax break that we should ALL be getting: a reduction — and even elimination — of the portion of the property tax that falls on buildings and other improvements to land.

Think what would happen if we reduced or eliminated that portion of the property tax. No more annual penalties for maintaining or improving one’s home or factory or commercial property. No more subsidies for those who keep obsolete 1- and 2-story buildings in mid- and high-rise neighborhoods.

Why do we continue to tax buildings and other evidence of productive effort? It seems backwards to those who stop to think about it.

Valuing land well is not particularly difficult or expensive. Valuing buildings accurately requires careful inspection. We could conduct decent reassessments of land every year or two for far less than it costs to do an assessment of building values.